The Allahabad High Court has once again made it clear that no tax liability can arise from a lease deed executed before the introduction of the Goods and Services Tax (GST) regime. In a recent ruling, the court granted an interim stay on GST proceedings initiated by the State authorities against Viable Venture Pvt. Ltd., observing that the lease agreement in question was signed before the GST law came into effect.

This order has brought significant relief to taxpayers who entered into lease or rent agreements prior to July 1, 2017, the date when the GST regime officially began in India.

The Case at a Glance

The case was heard by a Division Bench comprising Justice Saumitra Dayal Singh and Justice Indrajeet Shukla. The petition was filed under Writ Tax No. 4870 of 2025 by Viable Venture Pvt. Ltd., challenging a notice dated March 4, 2025, issued by the State GST authorities.

The company argued that it was being wrongfully asked to pay GST on a lease deed executed on June 7, 2017, which was before the GST Act was implemented. The petitioner was represented by Advocates Sri Shaubhik Gupta and Sri Shivang, while the State was represented by Additional Chief Standing Counsel Sri Nimai Das.

Petitioner’s Standpoint

The petitioner’s main argument was straightforward — since the lease deed was signed before the enforcement of the GST regime, the transaction fell completely outside the purview of GST.

They emphasized that the UPGST Act, 2017, came into force only from July 1, 2017, and therefore, any transaction or contract completed before that date could not be taxed under the new system.

The petitioner relied heavily on an earlier case — Srigarv Infratech Pvt. Ltd. v. State of Uttar Pradesh — where a similar issue was under consideration. The plea in that case also questioned whether GST could be retrospectively applied to transactions executed before its enforcement.

The petitioner’s counsel pointed out that applying GST retrospectively would violate the principle of certainty and fairness in taxation. Businesses must be able to plan their operations based on existing laws, and retrospective taxation creates unnecessary confusion and hardship.

The State’s Response

On behalf of the State, the Additional Chief Standing Counsel sought time to file a counter affidavit, arguing that the issue required detailed examination. The State did not strongly oppose the stay request but maintained that the legal question of GST applicability to older transactions was still under review.

The State’s counsel suggested that since the issue was already pending before the court in Srigarv Infratech Pvt. Ltd., this case could also be listed along with it to ensure uniformity in the final judgment.

Court’s Observations

The High Court carefully examined both sides and noted that the facts of the case were indeed similar to those in Srigarv Infratech Pvt. Ltd. The Bench emphasized that since the previous case was already under judicial consideration, the current petition should be heard together to maintain consistency in rulings.

The judges highlighted that taxation laws should be applied fairly and prospectively. Unless a law specifically states that it applies retrospectively, it should not affect transactions or agreements executed before its enforcement.

The Court recognized that imposing GST on a pre-GST lease deed would be unjust and beyond legislative intent, as the parties had entered into the contract based on the laws prevailing at that time.

Interim Relief Granted

After reviewing the arguments, the High Court granted interim relief to the petitioner. The order stated:

“Further proceedings pursuant to the notice dated 04.03.2025 shall remain stayed until further orders.”

The Court allowed the State four weeks to submit its counter affidavit and gave the petitioner two additional weeks to file a rejoinder. Until further orders, no coercive steps or tax recovery actions could be taken against Viable Venture Pvt. Ltd.

This stay means that the company is temporarily protected from any GST liability arising from a lease agreement that predates the GST regime. It also signals the court’s acknowledgment of the need for clarity and fairness in taxation during India’s transition to the new system.

Understanding the Core Issue: Retrospective Taxation

Retrospective taxation has always been a contentious topic in India’s legal and financial landscape. The fundamental question here is — Can a new tax law apply to an old transaction?

The general principle is no, unless the law clearly says otherwise. Tax laws are meant to be prospective, applying only to future transactions. This is because people and businesses make financial decisions based on the legal framework that exists at that time. Changing those rules later, and then taxing them retroactively, is considered unfair and against natural justice.

In this case, the lease deed was executed on June 7, 2017, when the old tax laws (like service tax or VAT) were still in place. The GST regime began only from July 1, 2017. Therefore, the lease deed was governed by the earlier legal system, not GST.

By attempting to impose GST on such a transaction, the authorities were effectively trying to apply the law backward, which goes against long-established tax principles.

Why This Ruling Is Important

The Allahabad High Court’s interim order has a wider impact than just this one case. It sets an important precedent for taxpayers, real estate companies, and businesses across the country.

Here’s why this ruling matters:

  1. Protection from Retrospective Tax Demands
    The court’s decision gives relief to those who had executed contracts before GST came into force. It ensures they are not burdened with unexpected liabilities that didn’t exist when their agreements were signed.

  2. Reinforcement of Legal Certainty
    The judgment emphasizes that taxpayers should always be able to rely on the law as it stands. This promotes trust, transparency, and predictability in the taxation system.

  3. Prevention of Double Taxation
    Before GST, such lease agreements may have already been subjected to service tax or VAT. Applying GST retrospectively would mean double taxation — something that the courts have repeatedly rejected.

  4. Judicial Consistency
    By aligning this case with Srigarv Infratech Pvt. Ltd., the court ensures that similar matters will be decided together, maintaining consistency in the legal interpretation of GST’s applicability.

The Bigger Picture: Fairness in Taxation

The Indian judiciary has consistently upheld that fairness must be at the heart of every tax decision. Taxpayers are expected to comply with the law, but the law must also treat them fairly.

The High Court’s approach in this case demonstrates a balanced perspective — it does not outright reject the State’s authority but ensures that no taxpayer suffers unjustly due to administrative overreach.

It also reminds businesses to maintain complete documentation of pre-GST contracts and agreements. Properly recorded and dated documents are crucial when contesting such tax demands.

Conclusion

The Allahabad High Court’s interim stay in Viable Venture Pvt. Ltd. v. State of UP is more than just temporary relief — it is a reaffirmation of the fundamental legal principle that tax laws cannot be applied retrospectively unless expressly permitted.

By halting GST proceedings on a pre-GST lease deed, the court has set an example of how justice must balance law and logic. The ruling provides clarity and comfort to countless taxpayers who are still dealing with the complexities of India’s transition to the GST framework.

As the case is scheduled to be heard along with Srigarv Infratech Pvt. Ltd., the final judgment will likely play a crucial role in defining the scope of GST’s applicability on past transactions. For now, it stands as a reminder that natural justice and fairness remain the guiding principles of India’s tax system.